INTERNATIONAL TRADE AND INDUSTRIAL DYNAMICS

Josh Ederington and Phillip McCalman

International Economic Review, 2009, vol. 50, issue 3, 961-989

Abstract: In this article, industrial evolution is driven by endogenous technology choices of firms, generating a rich environment that includes the possibility of a dramatic shakeout. The likelihood, magnitude, and timing of this shakeout are characterized and depend not only on the size of an innovation but also on cost structure. In this setting, trade liberalization reduces the likelihood of a shakeout, resulting in more stable industrial structures. However, when shakeouts arise in global markets, the distribution of exits can vary widely across countries. Furthermore, conditions exist where a shakeout occurs in a closed economy but not in an open economy. Copyright © (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2009
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